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Neiman Marcus has reached an agreement in principle with its creditors on the terms of a restructuring deal that the company said would provide it with a three-year runway to “execute on and complete its transformation plan into a customer-centric luxury platform,” including a partial pay-down of the company’s term loan, an extension of remaining term loan debt, and the distribution of a preferred equity stake in the contested MyTheresa unit to unsecured bondholders pursuant to a notes exchange.

The troubled retailer, represented by Lazard and Moelis, ironed out an amend-to-extend transaction to lengthen the maturity of its $2.8 billion covenant-lite B term loan due October 2020 (L+325, 1% LIBOR floor)—its first large maturity—by three years, to 2023, according to cleansing documents filed with the SEC to lift trading restrictions.

Under the deal, lenders have the option to extend into one of two tranches paying either L+650 or L+550/100 PIK. Both carry a 1.5% LIBOR floor.

A $550 million partial pay-down of the term loan, meanwhile, would be funded by new second-lien notes that would be collateralized by a partial guarantee from MyTheresa of $200 million. The new second-lien notes would pay 8% cash/6% PIK and mature in April 2024.

The issuer also has the option to propose up to $250 million of additional par pay-downs from real estate transactions, subject to a majority term lender vote. Further amendments to the term loan that tighten a series of covenants related to debt baskets would also place limitations on dealings with MyTheresa.

A 125 bps fee would be paid in cash upon closing of the transaction to those lenders that agree to non-disclosure agreements through and sign on to a restructuring support agreement by March 12, while a 25 bps fee would be paid to term lenders that sign on to the RSA within five days of the announcement of the execution of the agreement.

Unsecured noteholders would exchange $250 million into a par amount of MyTheresa 10% cumulative preferred equity, with the balance of their holdings exchanged into new third-lien notes due 2024, along with a first-lien on PropCo assets and a first-lien on 50% of MyTheresa common equity.

The restructuring sets out a waterfall payment plan for MyTheresa that places the $200 million reserve for the second-lien notes guarantee first, followed by $250 million for the preferred equity issued to exchanging noteholders, $250 million for preferred equity issued to sponsors, and lastly common equity, with 100% of the proceeds from the unsecured noteholders’ share of the common equity used to pay down the third-lien notes at par.

The agreement was reached with an ad-hoc committee of holders of the company’s unsecured 8.750%/9.500% senior PIK toggle notes due 2021, and the company’s unsecured 8.000% senior cash-pay notes due 2021, as well as an ad hoc committee of term loan lenders. The agreement is subject to the completion of all documentation, the company said, adding that all term loan lenders and all but one of its noteholders in those ad hoc groups have agreed to extend confidentiality agreements through March 12, with the one dissenter’s objection based on naming Neiman Marcus Group LLC as a co-issuer of the company’s debt, rather than a substantive objection to the terms of the transaction.

The bondholder group is working with Houlihan Lokey as financial adviser, filings show.

Neiman also disclosed that it expects to report an increase in comparable revenue on a U.S. basis of 0.5% to 1.0% for the second fiscal quarter ending January 2019 from the year-ago period, representing the sixth consecutive quarter of comparable revenue increases. In addition, year-to-date Adjusted EBITDA through the second quarter of fiscal year 2019 is expected to be generally consistent with previously disclosed expectationsThe MyTheresa issue.

The agreement to partially return MyTheresa collateral shows a bit of a U-turn by the issuer, which previously dug its heels in over the luxury fashion brand, a stance that became a point of a contention after the asset was put out of the reach of creditors via a transfer to a subsidiary sitting directly under the parent company.

Distressed investing fund Marble Ridge Capital in December asked a Dallas court to appoint an equity receiver to request the return of the MyTheresa brand after it sent a letter to Neiman’s board in September claiming that the action constituted a default. Neiman Marcus fought back at the claims, filing its own lawsuit for “damages resulting from a series of false statements that Marble Ridge Capital has made publicly about the company,” and requesting the case be dismissed. A judge last month granted Marble Ridge discovery with respect to claims from Marble Ridge that the loan agent blocked the fund from obtaining a position in the debt.

With respect to claims of default, the restructuring could block these objections, according to the term sheets, which require lenders to waive any existing defaults.

Today’s proposed restructuring proposal, however, was not enough to sway Marble Ridge to the company’s side.

“Your [p]roposal’s’ request for bondholders to waive their claims against you and the sponsors arising out of your misconduct is nothing more than a transparent attempt to insulate yourselves from liability,” Marble Ridge said in a statement today. Marble Ridge said it is “confident” that the [court] discovery will confirm the company’s “scheme to strip value away from creditors to benefit out-of- money sponsors.”

Neiman Marcus has $4.3 billion of debt outstanding, including the $2.8 billion covenant-lite B term loan due October 2020 (L+325, 1% LIBOR floor), $659 million of 8.75%/9.5% PIK toggle notes due 2021, and $960 million of 8% cash-pay notes due 2021.

The term loan was marked at 95/96, from 92/93 yesterday. The PIK toggle notes due 2021 rallied seven points, to 59.5. The 8% cash-pay notes due 2021 traded also to 59.5, up 7.5 points. — Rachelle Kakouris

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